Corporate actions: How the events of 2020 will impact the year ahead

This was a year unlike any other, as the global pandemic disrupted the expectations and assumptions that have guided financial services for decades. The impact on corporate actions, in particular, has been profound, as firms faced fluctuating timelines and high processing volumes as dividends were cancelled, schedules changed, mergers and acquisitions postponed, and frequent trading halts and restrictions.

The uncertainty dramatically increased the levels of effort back-office teams needed to expend. Even for high-functioning financial organizations, the events of 2020 uncovered cracks in the approach to corporate actions processing and prompted a rethink in terms of the way the data is collected, validated and shared. The ways in which firms responded to this unusual year predict the shape of things to come for corporate actions in 2021 and beyond.

Here are the top trends that emerged this year and are likely to influence the year ahead:

1. The front and back office will coordinate activities
2. Operations and finance will collaborate on taxation
3. The reliance on outsourcing and automation will grow
4. Corporate actions teams will prioritize governance centralization

1. The front and back office will coordinate activities

As the world of corporate actions becomes less predictable, the front and back office will need to connect and align more closely to share data and create a mutually supportive process. The back office will support front office functions by tracking events of interest that impact strategies, affirming valuations, providing deadline information that impacts the execution of trades and strategies around corporate actions, and quarterbacking the events and the entities and paperwork involved. Where these events involve multiple strategies or overlapping portfolios, the back office will need to ensure that the right decision-makers are kept informed and up to date.

2. Operations and finance will collaborate on taxation

Companies, governments and regulators are finding new and creative ways to derive the greatest value from a taxability perspective. As a result, the industry is seeing a higher number of taxable events that aren't market standard and a lack of harmonization across various country regulations have further complicated the matter. Resolving these nonstandard events requires input from multiple perspectives and areas of expertise, and firms are tackling the issue by strengthening the connection points between corporate actions processors and the tax, accounting and finance teams.

Technology will play a role in facilitating this collaborative approach by consolidating data from multiple information sources and enabling all stakeholders to view the event, understand the terms and weigh in on the implications.

3. The reliance on outsourcing and automation will grow

In addition to coping with the challenges of transitioning their staff to remote work, financial services firms have been overwhelmed by the need to manage a higher volume and greater complexity of data than ever before. For many, the experience underscored the need to find ways to alleviate the pressure by assigning responsibilities more strategically.

Outsourcing and technology are enabling internal teams to create more manageable workflows by offloading time-intensive activities such as announcing and capturing corporate actions and scrubbing data. By delegating these processes to external teams, automated systems or a combination of both, back-office teams can stay focused on high-value activities such as increasing governance around high-risk events and creating a central oversight model with a single set of controls.

4. Corporate actions teams will prioritize governance centralization

The volume and complexity of corporate actions in 2020 exposed the operational shortcomings of systems that are made up of regional or operational silos. With pockets of activity taking place within independently operated back offices in multiple regions, firms couldn't benefit from shared best practices driving greater efficiencies and risk mitigation. By transitioning to a centralized governance model, firms can achieve greater consistency and apply best practices across global teams.

For those firms that have already undergone a centralization process, the focus will be on optimizing those areas where the impact of 2020 revealed weakness. By analyzing performance across teams or regions, the back office can strengthen processes even further and move towards greater efficiency. Those efficiencies, in turn, can free up more time for their internal teams to focus on identifying high-risk events and getting event information to the decision-makers sooner.

Amid the uncertainty, back-office teams refocus on the essentials

Despite—or perhaps because of—the turmoil of the past year, some industry participants see the industry moving toward greater harmonization of the rules and regulatory requirements across various countries to create a universal standard of market practice. However, the geopolitical realities suggest that this ideal state is unlikely to be reached in the near future.

In the meantime, corporate actions teams must prepare for the realities of processing in a non-standard world. Remote operations, a higher volume of action, market uncertainty, and increasingly complex and contradictory global taxation and regulatory frameworks created significant challenges in 2020 and will continue to do so in 2021 and beyond. Functioning in the "new normal" will require processors to delegate or automate low-level tasks wherever possible and focus on centralizing and optimizing operations through information-sharing, collaboration and standardization.

IHS Markit provides a unified Corporate Actions solution to help firms across a range of asset classes, market client types and business lines, to reduce their risk and automate, strengthen and accelerate their corporate actions processing. We invite you to visit our Corporate Actions web page to find out more.

We invite you to register to speak to one of our corporate actions experts today to learn more.

Posted 18 January 2021 by Neal Magnotta, Director, Corporate Actions, IHS Markit

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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